Abstract: South Asian countries face resource constraints in expanding public hospital infrastructure, which is a key requirement for achieving the health MDGs. Although increasing public expenditure efforts is partly a solution, it is unlikely to be sufficient. Recent studies of hospital efficiency in Bangladesh, Nepal, Sri Lanka and India show that large differences in system efficiency exist between the countries, with Sri Lanka generally achieving better efficiency levels. This study profiles the organisation of hospitals at the sub-regional or district level in the three countries, identifies differences in system efficiency, and explores possible explanations for the productivity differences found. Overall it is found that the Sri Lankan hospital system is much productive than those in Bangladesh and Nepal, producing much higher volumes of services than in those countries. Some of the higher output is due to higher levels of spending on hospital services in Sri Lanka. However, differences in spending levels are not sufficient to explain the differences observed in outputs. These appear to be also due to differences in productivity at the individual hospital level, with Sri Lankan hospitals being more technically efficient than Bangladeshi hospitals which are in turn more efficient than Nepalese hospitals. It is also found that lower relative wages and higher labour productivity in Sri Lankan hospitals also contributes to their lower cost. Other findings are that hospitals in Bangladesh and Nepal are not operating at scale economies, and that Sri Lanka achieves much of its higher output by operating a range of small and basic hospitals, which have no counterpart in the other two countries. These results suggest that there is considerable room for improvement in the system efficiency of hospital services in Nepal and Bangladesh. In particular, expanding the number of fixed delivery points and expanding the size of current hospitals, whilst at the same time reducing the capital, technology and labour intensity of facilities would be more optimal. Both countries might also need to consider introducing a simpler hospital design to provide even cheaper provision of services at the lowest community levels.